Accounting for Managers: Interpreting accounting information for decision-making

18 ACCOUNTING FOR MANAGERS

Strategy Shareholder value Financial accounting

(stewardship)

Marketing

operations

Human resources

Financial

management Management accounting(information for planning,

decision-making and control)

Figure 2.3 Shareholder value, strategy and accounting

Financial management (which is outside the scope of this book) is concerned
with raising funds from shareholders or financiers to provide the capital the busi-
ness needs to sell and produce goods and services. Financial accounting represents
the stewardship function, that managers are accountable to those with a financial
interest in the business and produce financial reports to satisfy that accountability
(Chapters 6 and 7). Management accounting provides the information for plan-
ning, decision-making and control. Therefore, the main content of this book is
the interaction between the functional areas of marketing, operations and human
resources – driven by strategy – and how accounting provides a set of tools and
techniques to assist functional managers. Management accounting both influences
and is influenced by the functional areas and by business strategy.
The importance of strategy for management accounting and the information it
provides is that a strategic perspective involves taking a longer-term view about the
business than is usually provided by traditional accounting reports. Management
accounting comprises a set of tools and techniques to support planning, decision-
making and control in business organizations. Accounting is – or at least should
be – integrated with business strategy. However, these same accounting tools and
techniques can be used to help evaluate the performance of customers, suppliers
and competitors in order to improve competitive advantage. This is called strategic
management accounting, which is described in Chapter 4.
Accounting should also extend beyond a narrow concern with financial mea-
surement and encompass non-financial performance measurement, a subject of
steadily increasing importance for those managers who are responsible for achiev-
ing performance targets, as well as for accountants (performance measurement is
also described in Chapter 4).
Strategy is concerned with long-term direction, achieving and maintaining
competitive advantage, identifying the scope and boundaries of the organization
and matching the activities of the organization to its environment. Strategy is also
about building on resources and competences to create new opportunities and
take advantage of those opportunities and manage change within the organization.
There is also a link between strategy and operational decisions in order to turn
strategy formulation into strategy implementation (for a fuller description, see for
example Johnson and Scholes, 1997).